Amazon, which has recently seen its growth driver shift from e-commerce to cloud services, is now the sixth most valuable company in the world, measured by market capitalization.
While competition for Amazon Web Services, the company’s cloud services division, has heated up in recent years, Amazon still occupies the number one position in the market at about 32% of the market share.
In this article, we’ll share tips for choosing a stock broker to buy Amazon stock, provide a step-by-step guide to help you make your first purchase, highlight exchange-traded funds (ETFs) with high exposure to Amazon stock, delve deeper into the reporting structure of Amazon, and more!
How to buy Amazon stock (Step-by-step guide)
1. Choose a good stock broker
Since Amazon is the sixth biggest company in the world, you can choose from a myriad of brokers to help you make the purchase. That said, consider the terms offered by each broker and ensure the broker you pick works with residents of your country. Below we highlight four brokers which offer Amazon stock:
|Broker||Stock commission, US||Minimum Deposit||Available countries|
|eToro||$0||$10 (varies for different countries)||Worldwide – exceptions apply.|
|Interactive Brokers||Free for US investors. Up to $0.0035 per share with a minimum of $0.35 for international investors||$0||Worldwide – exceptions apply.|
|Trading 212||€/£0||€/£10||Worldwide. Not available in the US and other countries.|
|Saxo Bank||$0.02 per share with a minimum of $10.00||$0 to $10,000 (varies between countries)||Worldwide. Not available in the US and other countries.|
2. Open and fund your account
Once you have weighed the pros and cons of each broker, you are all set to open an account. The process usually takes a few days as the broker verifies your identity. After the process is finalised, you must deposit money into your account.
3. Place a “Buy Order”
If you have found an online broker that suits your needs, managed to open an investment account, and made the initial deposit, you are all set to buy your stock. All you have to do is find the share within your chosen broker and place a buy order. For this example, we will use eToro:
a) Search for Amazon stock ( ticker “AMZN”):
b) Click “Trade”:
c) Choose the order details. Now, it’s time to choose how to invest:
- Amount: You choose the amount you want to invest in Amazon instead of the number of shares. In this way, your investments may be fully or partially in fractional shares.
- Units: As opposed to “Amount,” here you define the number of shares you want to purchase (note: you can buy using either “Amount” or “Units,” up to you!)
- Leverage: You can choose the level of leverage. “X1” means no leverage (if it were “X2” or above, you would not be trading real stocks but CFDs on Amazon stock instead). That’s why you see “you are buying the underlying asset.”
- Stop Loss: Define the maximum you are willing to lose before closing your position automatically;
- Take profit: Define the profit amount that makes you close your position automatically (if reached).
Stop Loss and Take Profit are not guaranteed, and trading with leverage involves high risk.
Only the “Amount” (or “Units”) and “Leverage” are mandatory fields.
d) Place the order: Finally, click “Open Trade,” and a new window will show up where it says “order filled,” your exposure, and lets you share your trade with other people.
ETFs – an alternative way to gain exposure
ETFs allow you to gain exposure to a dozen or even hundreds of companies with a single investment. ETFs can be a good option if you:
- Want to complement your Amazon position with similar companies;
- Want to limit your portfolio volatility (ETFs invest in many companies operating in different lines of business, limiting your exposure to idiosyncratic risks);
- Are interested in following a specific theme in your investments (consumer discretionary stocks, technology shares, etc.);
Some ETFs you may want to consider are:
- Consumer Discretionary Select Sector SPDR Fund (ticker XLY) tracks 53 consumer-focused companies, heavily weighted to the top two names – Amazon at 23.17% and Tesla at 18.89% of ETF assets respectively. The rest of the holdings are all below 5%. The ETF distributes dividends, and the expense ratio stands at 0.10%.
- Invesco QQQ Trust (ticker QQQ) is a broad technology ETF, with Microsoft (12.89%), Apple (12.38%), NVIDIA (6.98%) and Amazon (6.90%) the largest constituents. The ETF distributes dividends, and the expense ratio stands at 0.20%.
Amazon’s Financials and Performance
Once you have purchased Amazon shares, it is a good idea to keep track of how the company and its competitors are doing. In doing so, you will get greater insight into whether to add to your position, hold it, or sell it to pursue better opportunities elsewhere.
Apart from the investor relation section (available here), there are specialised platforms to help you understand how Amazon is doing from a financial perspective. One platform you can use is Koyfin – you can access Company overviews, Key statistics, Financials, Transcripts, and more! Get a 20% discount on Koyfin.
For example, Koyfin allows you to get a quick handle on how the company’s revenues and margins (as measured by gross profit) are doing:
While such platforms cannot substitute your research 100% of the time, they can be a very useful tool in the research process, saving you time and providing new investment ideas.
The go-to place to find up-to-date information on the company is its investor relations section, available here. Below we will provide a quick overview of the company’s operations.
Amazon reports results in three main segments:
- North America – 60% of revenue
- International – 23% of revenue
- Amazon Web Services (AWS) – 17% of revenue
North America is the company’s largest division. It consists of amounts earned from retail sales of consumer products (including from sellers) and subscriptions through North America-focused online and physical stores.
After recording losses throughout 2022, the segment has swung to profitability in 2023 and now accounts for 15% of the company’s operating income.
International is Amazon’s second-largest segment. It consists of amounts earned from retail sales of consumer products (including from sellers) and subscriptions through internationally-focused online stores.
The segment remains the only loss-making division of Amazon and is the slowest growing of the three business lines, at just 1% Y/Y in Q1. The lackluster topline performance can be partially explained by US dollar strength.
Amazon Web Services, or AWS, consists of amounts earned from global sales of computing, storage, database, and other services for start-ups, enterprises, government agencies, and academic institutions.
While AWS is still the smallest contributor in terms of the company’s topline, it is the fastest growing division of Amazon, increasing revenue by 16% Y/Y in Q1. Where AWS truly shines is its profitability – the segment accounts for 85% of all company operating income.
Cash flow metrics are also crucial in accessing Amazon’s financial health. The three main indicators to watch are:
- Operating cash flow
- Purchases of property and equipment
- Free cash flow
Over the past year, Amazon has shown solid progress in its cash conversion. Operating cash flow, which tracks cash generation before the necessary investments in the business, is up 38% Y/Y in Q1 2023. Purchases of property and equipment, which allows the company to replace ageing long-term assets, is flat over the past year. This has resulted in a substantial improvement (+$15.3 billion) in free cash flow, which is still marginally negative, at -$3.3 billion in Q1 2023.
As long as Amazon can grow operating cash flows ahead of capital expenditures, the company can turn free cash flow positive. This will be the key metric to watch in the coming years, considering Amazon has just $146 billion in shareholders’ equity. Given the $1.3 trillion market capitalization, investors will primarily watch the company’s income statement, revenue, margins and free cash flow to assess its value.